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Update for Friday, May 2, 2014; 4:24 PM, EDT.

[Bottom Line]: It was an up week for the blue chips but a down day. Today's NYSE volume was the
lightest of the week. A five-wave decline from today's high would mean that the next larger degree of
trend had turned lower. The new issue of EWFF discusses the overall market environment, so take a
read when you get a chance.


The blue-chip rally from April 11 at 16,015.30 in the DJIA and 1814.36 in the S&P appears to be a
complete five waves up to today's highs, which are 16,620.00 and 1891.33, respectively. The fifth wave
is a challenge to labelit's not an ending diagonaland the decline from today's highs is just three
waves so far, so the market has more work to do before a high can be confirmed. Neither index
exceeded its April 4 intraday high at 16,631.60 (DJIA) and 1897.28 (S&P). The index with the clearest
near-term pattern is the Dow Jones Composite Average, which consists of all the stocks in the Dow
Industrials, Transports and Utilities. The pattern has myriad options for wave labels at a larger degree.
When those options narrow, we'll show the charts.
A five-wave decline from today's highs would be the initial step in confirming that a larger decline has
started. If this pattern traces out, the S&P's initial short-term target is the open gap at 1842.98 from
April 15 (16,262.50 in the DJIA). More bearish potential exists. A rally above 16,560.70 in the DJIA and
1885.98 in the S&P would make the today's decline a "three," indicating another upward push above the
day's highs.


The NASDAQ Composite filled the open gap at 4148.38 yesterday morning, when the index rallied to
4149.50, the intraday high. So the upside potential may be complete. But the pattern since this high may
have taken the shape of a triangle, which implies another upward push early next week. If so, the next
short-term target area is 4168-4185. A decline through 4114.70 would negate the triangle and make the
rally from 4014.10 an "A-B-C," suggesting that the index will then decline below this low.


The initial target for wave C of (2) remains 2.340%-2.469% for [10-year U.S. T-note yields]. Ten-year
yields closed today at 2.588%, their lowest close since February (the wave A low), keeping the wave
structure on track to achieve our oft-cited target.

Our confidence is diminishing with respect to the next move in the [Euro]. Prices have had two
opportunities over the past three days to decline through the 10-month trendline but have turned back up
and away from the line. It crosses 1.3772 on Monday. A rally above 1.3967, the March 13 high, would
temporarily rescind the bearish forecast until we can better assess the myriad options in the wave


The [U.S. Dollar Index] remains the key level at 79.33, the April 10 low. A break there would suggest
that even lower prices were ahead prior to another attempt at a more significant rally.

[Gold] remains in wave D down from the $1392.56 high on March 17. In Wednesday's STU we warned

of wide swings and increased complexity in the near-term waves and we're starting to see this behavior.
The key point to keep in mind is that prices have not yet fallen far enough to label wave D complete.
Regardless of the near-term gyrations, and there will be more, the $1216-$1244 range remains a highprobability target for the conclusion of this wave.

[Silver] closed yesterday at $19.07 and rebounded sharply today. We keep waiting to see if prices are
able to trace out an "a-b-c" bounce and today is another juncture where they may have a chance. The
previous wave iv high is $20.43 and that's always a good initial target. If silver cannot hold today's gains
then it appears that the slope of the decline will become steep, with prices falling quickly to the next
minor support surround the $17.28 level. More bearish potential would exist. In the bigger picture, the
wave structure of the decline from the April 2011 peak is not complete, therefore the major bear trend is
not yet finished.
Have a great weekend!
Next Update: Monday, May 5, 2014.
--Steven Hochberg, Editor.
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